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PETITIONER: COMMISSIONER OF INCOME TAX,MADRAS

       Vs.

RESPONDENT: M/S. GEMINI PICTURES CIRCUITPRIVATE LIMITED

DATE OF JUDGMENT:       27/03/1996

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) AHMAD SAGHIR S. (J)

CITATION:  1996 AIR 1522            1996 SCC  (4) 216  JT 1996 (3)   665        1996 SCALE  (3)197

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T B.P. JEEVAN REDDY, J,      These appeals  arise from  the judgment  of the  Madras High Court answering the two questions referred to it at the instance  of   the  respondent-assessee  in  favour  of  the assessee and against the Revenue. The two questions are:      (i) Whether,  an the  facts and  in      the circumstances  of the  case the      lands  sold   during  the  year  of      account was  not ’Agricultural land      in  India’   during  the   year  of      assessment and  hence not liable to      be excluded  from the definition of      the words ’capital Asset’?      ii) Whether,  the surplus  realized      on the  sale of land in the year of      account is  not exempt from capital      gains?"      The property  known as  Spencer’s Hotel  comprising  70 acres, 16  grounds* in  825 sq.ft.  situated on  Mount Road, Madras was  purchased by  one Gulab  Bhai Mukund Rao Rane in 1944. Rane sold an extent of 79 grounds 242 sq.ft.(roughly 4 acres and  odd) out of it to the assessee under a registered sale-deed dated  October 27,  1950 for  a  consideration  of Rs.5,53,705/-.  The   extent  purchased   by  the   assessee comprised the  hotel building  as well. After purchasing the said extent,  they constructed  two buildings over an extent of 20 grounds towards the north. A common road of a width of 265 ft.  leading from  Mount Road  was also  formed  at  the western extremity  of the  property; the  road took away 7.6 grounds. An  extent of  9.8 grounds was kept as frontage for the two  buildings. Excluding  the  area  covered  by  three buildings, their frontage and the road, ------------------------------------------------------------ *In the  city of  Madras, we  are told,  a ground  means  an

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area/plot admeasuring 266 sq.yards. an extent  of 39.1  grounds was  still left  vacant. On this extent, the  assessee was raising bananas. From 1962, it had been growing vegetables thereon.      In the years 1966-67, the assessee executed three sale- deeds. 19.74  grounds was  sold to  India Cements Limited on April 29,  1966. 10.05  grounds was sold to Imperial Tobacco Company of  India Limited on April 29, 1966 and 3.85 grounds was sold  to Handicrafts  Emporium on  March 27,  1967.  All these  sale  deeds  were  in  respect  of  the  vacant  land comprised in  39.1 grounds  aforesaid.  In  the  proceedings relating to  its assessment for the Assessment Year 1967-68, the  assessee   contended  that  the  land  sold  under  the aforesaid three sale-deeds, being an agricultural land, does not constitute  ’capital asset’  and, therefore,  the profit arising from  its sale  is not exigible to tax under Section 45 of  the Income-Tax  Act, 1961.  The  Income  Tax  Officer rejected the  contention holding  that having  regard to the location and  the physical  characteristics of the land, the development and  use of the adjoining lands and the price at which and the purpose for which it was sold, go to show that it was  not an  agricultural land.  On appeal, the Appellate Assistant Commissioner affirmed the view taken by the Income Tax Officer.  On further appeal to the Tribunal, there was a difference of  opinion between the Accountant Member and the Judicial  Member.   The  Accountant  Member  attached  great importance to  the  fact  that  the  land  in  question  was actually under  cultivation on  the sale  and held  that the other   circumstances pointed  out by the Income Tax Officer and the Appellate Assistant Commissioner do not detract from the position  that the  land was  actually being  used as an agricultural land  on the  date of  its sale.  The  Judicial Member on  the other  hand held  that having  regard to  the location, it’s  price, the fact that it was registered as an urban land  in the  Municipal records  and the  purpose  for which land  was purchased  would all  go to show that it was not an  agricultural land. In view of the said difference of opinion, the  matter was  referred to  the Vice President of the Tribunal.  The Vice  President agreed  with the Judicial Member. The  Vice President observed that the actual user is not conclusive.  He held  that an urban land does not become an agricultural land merely because some cultivation is done thereon. He  referred  to  several  relevant  circumstances, viz.,(a) the environment and situation; (b) the intention of the assessee  at the  time of  purchase; (c)  the nature and character of  the land; (d) the previous, present and future use to  which the  land is  put; (e) its potential value and (f) the fact that it was registered as municipal land in the municipal records  and not recorded as agricultural land and held that  it cannot  be treated  treated as an agricultural land. Thereupon  the aforesaid  two questions  were referred for the  opinion of  the High  court at  the instance of the assessee. The  High Court  looked to the actual user. of the land in  the main  and on  that basis held the land to be an agricultural land.  In this  appeal, the  view taken  by the High Court is questioned.      The land  is situated  within the  limits of the Madras Municipal Corporation. It is located on the Mount Road which is the main artery of the city and its business Center. Even when the  assessee purchased  it in  1950, there  was  hotel building located in the said land. In the municipal records, the property was registered as urban land and urban land tax was being  levied thereon. It bore the municipal door number "151- Mount  Road, Madras."  After purchasing  the land, the assessee put  up two  more building  thereon in the northern

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portion which  together occupied  an extent  of  20  grounds which means  that they  were substantially  large buildings. One of  them was  occupied  by  the  assessee  for  its  own business purposes  and the  other was occupied by its sister concern. After  laying a  road and reserving certain portion to serve  as frontage for the buildings, an area of about 39 grounds was remaining open. The assessee was raising bananas thereon until  1962 and thereafter vegetables until the year 1966-1967 when  it was sold to three parties as aforestated. It is  significant to  notice that  even when  the  assessee purchased an  extent of  about 4  acres of land with a hotel building in  1950, for  a consideration  of 5.53  lakhs,  it could not  have been  for  the  purpose  of  raising  banana plantation or  vegetables. And  when it  was sold in 1966-67 (which is  the relevant  point of  time for our purposes) it was sold  at the  rate of  about Rs.  260/-  per  sg.  Yard. Neither the sale-deed under which the assessee purchased the said land  nor the  sale deeds  executed by  it  in  1966-67 describe the  land as  an agricultural land. It could not be so described for the simple reason that it was registered in the Municipal  records as  an urban  land and Urban Land Tax was levied  thereon. After purchasing the lands the assessee itself constructed  two large buildings thereon. Indeeds the buildings were  being  used  for  non-residential  purposes. Indeed, the  building were  being used  for  non-residential purpose. The land is situated on Mount Roads Madras which is the most  important and  the busiest  thorough fare  in  the city. The  land is surrounded on all sides by industrial and commercial buildings. No  agricultural operations were being carried on  any land  nearby.  In  the  face  of  the  above circumstances, the  mere fact   that  vegetables  were being raised thereon  at the time of  the sale  or for  some years prior thereto  does not change the  nature and  character of the land.  Obviously, it  was only  a stop-gap  activity. It was not  a true  reflection of the  nature and  character of the land.  It is  a matter of common knowledge  that in  the heart of  New Delhi,  there are houses with  large compounds wherein a   portion  of the  open land is  used for  raising vegetables.     That  does     not     make  those  portions agricultural   lands.   In  the  case  of  the assessee too, the  raising  of  vegetables  was  a  stopgap activity until the assessee   found  a   better   use   for    it,  whether construction   of buildings   or  sale.   It  is    well  to remember that  the question  whether a particular land is ah agricultural land  has to  be decided  on a  totality of the relevant facts and circumstances. There may be circumstances for and  against. They  have to  be weighed  together and  a reasonable decision arrived at. One has to take a realistic- view and  see how were the persons selling and purchasing it understood  it.  Is  it  believable  that  in  1966-67,  the assessee  and   the  aforesaid  purchasers  were  under  the impression   that   they   were   selling   and   purchasing agricultural land?  Did they  consider and treat the land as agricultural land?  The answer is too evident to call for an elucidation.      Certain decisions  have been cited before us by counsel for both  the parties in support of their respective stands. It must,  however, be  remembered that facts of no two cases will be  identical. The  tests evolved  by the courts are in the nature of guidelines. No hard and fast rules can be laid down in  the matter,for  the reason that it is essentially a question of  fact. Even  sos a  brief reference to the cases cited would  be in  order. Strong reliance was placed by Sri Aruneshwar Gupta  upon two  decisions of  the  Gujarat  High Court in  Gordhanbhai Kahandas  Dalwadi v.  Commissioner  of

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Income-Tax, Gujarat  [(1981) 127  I.T.R. 671].  In the first case, the  land was  registered as  agricultural land in the revenue records  and land revenue was being paid thereon. No permission was  taken for  converting it to non-agricultural use before  the date of wale. Potential non-agricultural use or the fact that development had taken place in the vicinity of the  lands it  was helds do not militate against the fact that it  was an agricultural land. In the next case too, the land was  registered as  an agricultural land and permission to convert  it into  non-agricultural land  was not obtained before the  date of  sale. In the circumstances, it was held that mere  fact that  it was  sold  at  a  high  price  only indicates its  potentiality for  non-agricultural use.  On a consideration of  entirety of the circumstances, it was held that it was an agricultural land.      A recent  decision of  this Court  in Sarifabibi Mohmed Ibrahim and Others v. Commissioner of Income Tax [(1993) 204 I.T.R. 631],  rendered by  a  Bench  comprising  one  of  us (B.P.Jeevan Reddy, J.) is relied upon by the learned counsel for Revenue.  The Bench  observed: "Whether  a  land  is  an agricultural land  or not is essentially a question of fact. Several tests  have been  evolved in  the decisions  of this court and  the High  Courts, but all of them are more in the nature of  guidelines. The  question has  to be  answered in each case  having regard  to the  facts and circumstances of that case.  There may  be factors  both for  and  against  a particular point  of view.  The  court  has  to  answer  the question on  a consideration  of all of them - a process  of evaluation. The  inference has  to be  drawn on a cumulative consideration of  all the relevant facts." Several judgments of this Court and the High Courts were referred to including a judgment  of the  Bombay High  Court  in  Commissioner  of Income Tax  v. V.A.  Trivedi [(1988)  172 I.T.R.  95]. On  a consideration of  the factors  for and  against, the  Bombay High Court  observed in  V.A. Trivedi  that far ascertaining the true  character and  nature af the land, it must be seen whether it has been put to use for agricultural purposes for a reasonable  span of  time prior  to the  date of  sale and further whether on the date of sale the land was intended to be put  to use  for agricultural  purposes for  a reasonable span of  time in  future. Examining  the case  from the said point af  view, the  High Court  held that the fact that the agreement af  sale was  entered into  by the assessee with a housing society to of crucial relevance since it showed that the assessee had agreed to sell the land for admittedly non- agricultural purposes.  The ratio  of the  said decision was approved in Sarifabibi.      We do  not think  it necessary  to multiply  the cases, since, in  our respectful  opinion, no  other conclusion  is reasonably possible  in the facts of the case before us than the one  arrived at  by us.  All the three authorities under the Act  too arrived  at the  same  conclusion.  With  great respect to  the learned  Judges of  the High  Court, we find their wholly unsustainable and unacceptable.      The appeal  is accordingly allowed, the judgment of the High Court is set aside and the two questions referred under Section 256(1)  are answered  in favour  of the  Revenue and against the  assessee. The  appellant shall  be entitled  to their costs-Rupees ten thousand consolidated.